Investing is hard. So last week I put together this piece on three things we can learn from successful investors to lift our investing skill.
But here's the thing; it's not just two or three big things which separate successful investors from regular investors, but lots of little things. Here are three more things which define successful investors, things which regular investors often fail to do.
1. They invest where the puck is going
Successful investors think long term and invest ahead of the curve. This means not buying a company or industry for what it is doing today, but looking ahead to where it will be in 5, 10, even 15 years' time.
Identifying long-term trends is one way to do this. One example is the strong shift towards companies using the internet as a platform for business. Cloud based software providers like accounting firm XERO FPO NZ (ASX: XRO) or healthcare company Orion Health Group Ltd (ASX: OHE) are changing how businesses will operate in the next decade.
Motley Fool writer Owen Raskiewicz recently highlighted some other key trends here. They include the aging of populations, growth in global healthcare spending and rising demand for LNG.
2. They exploit their advantage
To be a cut above the rest successful investors know and exploit their advantages. This often involves investing in an area they have specific knowledge or expertise in, but not always.
U.S. tech billionaire Peter Thiel for example has a sole focus on young tech companies. He was one of the founders of PayPal and an early investor in Facebook. Thiel invests in companies which are on the cusp of technological change, companies many other investors avoid.
As small investors we often have expert knowledge of the industry we work in. We can use this to identify suppliers, competitors or new technologies before the rest of the market. We are also are free to invest in a wider range of companies like small-cap companies, and avoid specific companies or industries we don't like; advantages that bigger investors and fund managers lack.
3. They compound their returns
Yes, you've heard this a thousand times before, but let's cover it once more for emphasis. Let's say it altogether now: "REINVEST YOUR PROFITS!"
Be they dividends, capital gains or anything in between, compounding returns is one of the most powerful elements separating successful investors from regular investors.
Warren Buffett's Berkshire Hathaway is well noted for not paying a dividend to investors. Instead, Berkshire reinvests the money into the companies it owns to help them grow, or buys new companies. This has helped Berkshire's share price to grow at a compounded rate of 15% per annum over the last five years. So make sure you put those dividends from Woolworths Limited (ASX: WOW) to good use growing your portfolio.
